Capalla v. COMELEC

G.R. 201112, 23 October 2012

FACTS:

The Comelec and Smartmatic-TIM entered into a Contract for the Provision of an Automated Election System for the May 10, 2010 Synchronized National and Local Elections (AES Contract) which is a Contract of Lease with Option to Purchase (OTP) the goods listed therein consisting of the Precinct Count Optical Scan (PCOS), both software and hardware. The Comelec opted not to exercise the same except for 920 units of PCOS machines. Subsequently, the Comelec issued Resolution resolving to seriously consider exercising the OTP subject to certain conditions. It issued another Resolution resolving to exercise the OTP in accordance with the AES Contract.Later, the COMELEC issued Resolution resolving to accept Smartmatic-TIM’s offer to extend the period to exercise the OTP. The agreement on the Extension of the OTP under the AES Contract (Extension Agreement) was eventually signed. Finally, it issued Resolution resolving to approve the Deed of Sale between the Comelec and Smartmatic-TIM to purchase the latter’s PCOS machines to be used in the upcoming elections. The Deed of Sale was forthwith executed.

ISSUE:

Whether or not assailed resolutions and transactions entered are valid.

RULING:

Yes. The SC decided in favor of respondents and placed a stamp of validity on the assailed resolutions and transactions entered into. Based on the AES Contract, the Court sustained the parties’ right to amend the same by extending the option period. Considering that the performance security had not been released to Smartmatic-TIM, the contract was still effective which can still be amended by the mutual agreement of the parties, such amendment being reduced in writing. To be sure, the option contract is embodied in the AES Contract whereby the Comelec was given the right to decide whether or not to buy the subject goods listed therein under the terms and conditions also agreed upon by the parties.

Clearly, under the AES Contract, the Comelec was given until December 31, 2010 within which to exercise the OTP the subject goods listed therein including the PCOS machines. The option was, however, not exercised within said period. But the parties later entered into an extension agreement giving the Comelec until March 31, 2012 within which to exercise it. With the extension of the period, the Comelec validly exercised the option and eventually entered into a contract of sale of the subject goods. The extension of the option period, the subsequent exercise thereof, and the eventual execution of the Deed of Sale became the subjects of the petitions challenging their validity in light of the contractual stipulations of respondents and the provisions of RA 9184.

As the Court simply held in the assailed decision that the moment the performance security is released, the contract would have ceased to exist. However, since it is without prejudice to the surviving provisions of the contract, the warranty provision and the period of the option to purchase survive even after the release of the performance security. While these surviving provisions may have different terms, in no way can we then consider the provision on the OTP separate from the main contract of lease such that it cannot be amended under Article 19. Thus, not only the option and warranty provisions survive but the entire contract as well. In light of the contractual provisions, the SC sustained the amendment of the option period.